Speaker 1: Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane, along
Speaker 1: with Jonathan Ferrell and Lisa Brownwitz Jay Leye. We bring
Speaker 1: you insight from the best and economics, finance, investment, and
Speaker 1: international relations. Find Bloomberg Surveillance, an Apple podcast, Suncloud, Bloomberg
Speaker 1: dot Com and of course on the Bloomberg terminal. Let's
Speaker 1: bringing Rustco Strick now black Rock Global Allocation Fund portfolio
Speaker 1: manager Russell. Let's ask that question it's being asked in
Speaker 1: the ft here at Bloomberg and now swear as well.
Speaker 1: Do you think the events of the last week could
Speaker 1: lead to broader de leveraging in the hedge fund community.
Speaker 1: I think you you organ to see some people rethink
Speaker 1: their positioning. But look, I think there are a couple
Speaker 1: of things going on here apart from the question of
Speaker 1: leveraging derivatives. The first is we've known for many years
Speaker 1: that liquidity can be a challenge. A lot of that
Speaker 1: discussion was focused on the credit markets, and obviously it
Speaker 1: extends to equity markets as well. But the second part
Speaker 1: of this is really you know, you alluded to the
Speaker 1: calm on the surface, and I think that's true. What
Speaker 1: hasn't been remarked about is much is how much positions
Speaker 1: below the surface are being whipsawed these daily rotations where
Speaker 1: you see sectors and styles moving to three standard deviations
Speaker 1: in a day. Because investors flip back and forth between
Speaker 1: reopening trades uh in stay at home trades, that is
Speaker 1: also causing a lot of pain give on the wrong
Speaker 1: side of those moves, Russ. How do you synthesize a
Speaker 1: bloom economy into global allocation and for that matter, just
Speaker 1: trying to get the next Monday? How do you synthesize it?
Speaker 1: I'm gonna take hot seas over at Golden Sacks going
Speaker 1: out to a stunning ten percent plus statistic for Q
Speaker 1: two growth. You and I have never seen this. Um
Speaker 1: Rosenberg got a Carnegie email. In all the years he
Speaker 1: studied a temper guess what, he's never seen this? How
Speaker 1: do you frame your work in a boom mill you like?
Speaker 1: I think this is exactly the right question, probably the
Speaker 1: most important, because as you've said, very few living investors
Speaker 1: have ever seen this up to me, means a couple
Speaker 1: of things. One you were alluding to before the break,
Speaker 1: which is that rates are going to continue to normalize.
Speaker 1: It doesn't mean that they melt up forever. But it
Speaker 1: is very hard. I think Tommy, you nailed this before.
Speaker 1: To reconcile negative sixty bip real tenure yield and an
Speaker 1: economy that may grow seven eight uh in the back
Speaker 1: half of the year. One of those two things is wrong.
Speaker 1: We think rates continue to normalize. The other is a
Speaker 1: lot of investors were used to thinking only in terms
Speaker 1: of data, what's your market exposure? I think if you're
Speaker 1: gonna have an economy that's growing that fast, you also
Speaker 1: have to think in terms of your cyclical exposure. There
Speaker 1: are going to be parts of this economy companies that
Speaker 1: they're gonna see demand they've not seen in decades. Can
Speaker 1: you lever to those themes? Can you take advantage of
Speaker 1: that very fundamental change in a portfolio? Those are two things.
Speaker 1: We're focusing on. Our duration as the lowest that's been
Speaker 1: in years, and we're looking for ways to add cyclical
Speaker 1: exposure back into the portfolio. I know you're speaking metaphorically,
Speaker 1: Rusby said, how can we lever those cyclical themes in
Speaker 1: order to add exposure in your portfolio? There are people, however,
Speaker 1: who are taking this quite literally as we have learned,
Speaker 1: and they are leveraging up some of their positions. Yes,
Speaker 1: rates are normalizing, but there is a belief in the
Speaker 1: feed is adding to this that they are sitting on
Speaker 1: the front end. As we do see some push toward normalization.
Speaker 1: Are there more accidents waiting to happen like what we
Speaker 1: just saw. I think whenever you see an abrupt move,
Speaker 1: they are always going to be blow ups. They're going
Speaker 1: to be people that are over extended. You know, you've
Speaker 1: had a very strong bullmark, there's going to be concentration.
Speaker 1: The thing that I would watch is actually the rapidity
Speaker 1: of the move. You know, we we know this. We've
Speaker 1: seen that stocks and rates can move up together. A
Speaker 1: matter of fact, if you look at equities, equity multiples,
Speaker 1: and real rates, they tend to move up together for
Speaker 1: the obvious reason that as the economy gets better and
Speaker 1: companies gain operating leverage, earnings go up. What can trip
Speaker 1: up the market is the rapidity and more specifically the
Speaker 1: spike and bond market volatility. If you look at what's
Speaker 1: been happening the last three or four months, bond volatility
Speaker 1: has been increasingly moving with stock volatility. That's where I
Speaker 1: think the danger is if we get these days these
Speaker 1: weeks where yields back up this quickly. That unnerves investors,
Speaker 1: and that's when you tend to see some of these
Speaker 1: blow ups, Russ. Before we let you run. I caught
Speaker 1: up with Rick reader yesterday, just briefly, and he did
Speaker 1: not sound as bullish as he has done over the
Speaker 1: last several months. He was talking about a big cash
Speaker 1: allocation waiting for some volatility through the summer. You were
Speaker 1: all on the same page over a blank rock with
Speaker 1: that view. Well, I hope so Rick and port together
Speaker 1: we co manage the fund absolutely, we you know, so
Speaker 1: we we had been for the last five minutes. Delicately
Speaker 1: you sounded like a rig walk me throw it, Russ.
Speaker 1: We we've been doing exactly what's been described, which is, look,
Speaker 1: the fundamentals are strong with the cyclical recovery, stocks are
Speaker 1: likely to end the year higher. But we are looking
Speaker 1: at a chop your market. So what have we done.
Speaker 1: We've done a couple of things. We have trimmed our
Speaker 1: equity exposure, and we have brought the duration way way down.
Speaker 1: As I spoke about a moment ago, instead rather than
Speaker 1: looking it bonds for that hedge in your portfolio. Is
Speaker 1: Rick described, We've been building up cash. Having that dry powder,
Speaker 1: there will be opportunities to reinvest. Not trying to cause trouble. Rus.
Speaker 1: You know that took that black Rock global allocation of
Speaker 1: fun portfolio manage it. Okay, here's what we're gonna do, folks,
Speaker 1: And this is important for Global, Wall Street and everybody
Speaker 1: else on radio and TV. Why don't we find someone
Speaker 1: out there totally removed from the madness of margin calls
Speaker 1: and excess leverage. James Spevan would be a candidate with
Speaker 1: c c L a chief investment officer. He has been
Speaker 1: running sober money for decades and he joins us today. James,
Speaker 1: I'm not going to waste your time with the margin
Speaker 1: car discussion and that what I am going to say
Speaker 1: to you is, how do you operate in this mill? You?
Speaker 1: What do you actually do when you've got big banks
Speaker 1: bouncing off of big losses. What I observe, Tom, is
Speaker 1: that we are indeed going to get excellent economic growth
Speaker 1: figures for April and may significantly on the back of
Speaker 1: the actions Biden administration and not least four hundred dollars
Speaker 1: posted out to the eligible persons. And I think that
Speaker 1: therefore we will see something in the order of a
Speaker 1: hundred and eighty dollars of earnings to the S and
Speaker 1: P five hundred in the current calendar, rising to two
Speaker 1: hundred dollars next year, and of course, baked into the
Speaker 1: cake of those numbers is a premise that companies are
Speaker 1: going to invest in capital that improves productivity and allows
Speaker 1: margins to stay elevators. And given element that one might
Speaker 1: observe for inflation and money rates, I think that justifies
Speaker 1: the year end target for the SMP five hundred this
Speaker 1: year of points rising to hundred points next year. And
Speaker 1: if there is a real risk, I think it is
Speaker 1: twofold one that the Federal Reserve continues to argue that
Speaker 1: it doesn't need to change rates, but the bond market
Speaker 1: therefore does the work for quilling inflation. That leads to
Speaker 1: a dislocation between bond deals and equity prices and inevitably
Speaker 1: leads to a correction. The other risk, which I think
Speaker 1: is just as real, is that a large chunk of
Speaker 1: the fourteen hundred dollars that has been posted out is
Speaker 1: applying to the empty markets. We get them melt up
Speaker 1: during May and early June, and that's the point where
Speaker 1: we should take money off the table James optimal reopening
Speaker 1: quite then, what is it for me? It's the world
Speaker 1: class banks that operate in the United States, so JP
Speaker 1: Morgan and Bank America. Seems to me that they have
Speaker 1: ample opportunity to lend sensibly into an accelerating market. They
Speaker 1: have excellent loan criteria. I don't think they're going to
Speaker 1: trip up, but they will be significant participants in economic recovery.
Speaker 1: The other big trade I think is shifting from consumer
Speaker 1: staples to consumer discretionary, which is a very obvious trade.
Speaker 1: But I'm surprised when I look at the portfolios of
Speaker 1: fund managers in the marketplace. I hope you have yet
Speaker 1: to really make that switch. I gotta say, it does
Speaker 1: sound like there's some subtext there when you say your
Speaker 1: favoring banks that lend sensibly, and then you talk about
Speaker 1: JPMorgan and Bank of America to the banks that were
Speaker 1: someone immune from the recent blow up of our keegos.
Speaker 1: Are you saying away from other banks, from perhaps European
Speaker 1: banks or Japanese banks they got embroiled in this issue,
Speaker 1: or do you see them also as potentially holding value
Speaker 1: as the yield curve steepens. Now I am absolutely staying
Speaker 1: out of those areas. I worry that the European banks
Speaker 1: face perfect storm of continuing negative rates. And after all,
Speaker 1: what one thinks about how the European central banks Target
Speaker 1: two system operates. Unlike the federal reserve arrangements in the States,
Speaker 1: where the regional central banks to zero the inter bank balances,
Speaker 1: there are huge imbalances within the euro system. Germany has
Speaker 1: to lend huge sums into the Target two system. Buller's
Speaker 1: Bank then calls the commercial banks to provide capital, and
Speaker 1: having asked the capital, then sends from the bill because
Speaker 1: of negative interest rates. No surprise, the European banks are
Speaker 1: in real trouble. And I would observe that the French
Speaker 1: banks have been pulling back in lending into Asia. That
Speaker 1: strikes me as a real sign the French banks are
Speaker 1: gain to be in relative trouble. You want you to
Speaker 1: look outside the States. I think the most interesting area
Speaker 1: is India, where I see an accelerating economy, I see
Speaker 1: a reasonably well run banking system. Names like HFC I
Speaker 1: think absolutely stand out for consideration. James are going to
Speaker 1: jump in just to bring a break in news, just
Speaker 1: quickly Germany to reassess the actress Nika vaccine after more
Speaker 1: thrombosis cases. Tom this just speaks a divide between the
Speaker 1: United States and Europe right now. Just to compare and
Speaker 1: contrast to the last twenty four hours, President Biden talking
Speaker 1: about making the vaccine eligible for all adults in America
Speaker 1: of adults by the middle of next month, and here's
Speaker 1: Europe grappling still with the Astrosennaka vaccine to reassess the
Speaker 1: Astrosennacha vaccine in Germany after more thrombosis cases. That headline
Speaker 1: just crossing a Bloomberg Canada yesterday with much the same treatment.
Speaker 1: I'm not saying equivalent treatment, but certainly, John, it's a trend. James,
Speaker 1: how on earth do you stay long Europe in any way,
Speaker 1: shape or form with this going on in the background.
Speaker 1: I think it's extremely difficult to be positive about the
Speaker 1: outlook for the European economy. Justical policy is a mess.
Speaker 1: I think that there are real tensions within the euro system.
Speaker 1: If you asked me to talk about a country that
Speaker 1: is worth considering, it would be Italy. I do that
Speaker 1: there are political shifts in Italy to be positive for
Speaker 1: the long term. Equally, when I think about the sources
Speaker 1: of European companies that I would favor. It is the
Speaker 1: giants that are capable of making money like oh VMH,
Speaker 1: which I think remain extremely well run, and m Katy
Speaker 1: should be from my perspective, long term pool holdings of
Speaker 1: a growth focused portfolio. James, thank you as always. Let's
Speaker 1: get back to that news. James Bavin c c L
Speaker 1: A chief investment officer. Right now, Gregory Meeks joins us.
Speaker 1: He is a Democrat, he is from New York. This
Speaker 1: could be a two hour conversation because of his perspective
Speaker 1: on foreign affairs and his perspective as a congressman from
Speaker 1: John Fitzgerald Kennedy Airport in New York, the fifth District
Speaker 1: in New York. And we welcome to Congressman back again.
Speaker 1: Carruson Meeks. On infrastructure, I got good news. New Jersey's
Speaker 1: worse than New York. That's all we need to know.
Speaker 1: New York is doing fine right now by any civil
Speaker 1: engineering study. But you know, when you get off the
Speaker 1: plane in New York, at Laguardi, at JFK, anywhere else,
Speaker 1: there's a lot of roads that are troubled, a lot
Speaker 1: of bridges troubled. Some four hundred bridges in New York
Speaker 1: State or a hundred years older more. How do we
Speaker 1: fix it this with this new infrastructure bill? What's different
Speaker 1: this time? Right now? I think that this time we're
Speaker 1: going to get something done. Um. I think that you know,
Speaker 1: if you talk to Democrats and Republicans, I believe they
Speaker 1: understand that if you look at our crumbling infrastructure, like
Speaker 1: you said, not only in the city of New York,
Speaker 1: but across this nation, that we've got to invest in it.
Speaker 1: It's just the same as you know, those of us
Speaker 1: who you know workn't let their own homes. You've got
Speaker 1: to invest in your home to keep it up. Otherwise
Speaker 1: it will crumble down no matter how well it was built.
Speaker 1: But if it was built fifty sixty years ago, like
Speaker 1: our infrastructure, uh, it deteriorates. And therefore that you've got
Speaker 1: to invest in it. And if you invest in it,
Speaker 1: then that makes it profitable for everybody that will utilize it,
Speaker 1: because everyone will utilize that infrastructure. Can we do this
Speaker 1: with bond financing of the maturity and lengths of our
Speaker 1: new bridges, our new roads, and indeed a new terminal
Speaker 1: of JFK. Why can't we just finance this out thirty
Speaker 1: fifty even dare I say seventy years. Well, I think
Speaker 1: that what we need to do it is a combination
Speaker 1: of all It's gonna take a little bit of everything
Speaker 1: from everybody. That's why I'm a firm believer in these
Speaker 1: a number of public private partnerships. So as I look at,
Speaker 1: for example, of what we're doing at JFK Airport, UH,
Speaker 1: there needs to be there some government investment in it, UH,
Speaker 1: and we're fighting to get that. I tried to get
Speaker 1: some of it in UH because as the result of
Speaker 1: the pandemic. Of course, you look at the revenue that
Speaker 1: was at the Kennedy Airport, it went down tremendously, So
Speaker 1: government should help EDIT. But also we've had private industry
Speaker 1: that's investing in it, so we need some sacrifice from them.
Speaker 1: And that's why we extended the lease on the airport,
Speaker 1: so that there's a long return for them to get
Speaker 1: a return on their investment for the morning that they
Speaker 1: will be putting into it. Also, so you're getting money
Speaker 1: from both sides in that regards is fair to the
Speaker 1: taxpayers and it's fair to the private investors. Also, Congressman,
Speaker 1: you wear many hats, and I want to turn to
Speaker 1: a delicate question about foreign policy, if I made companies
Speaker 1: are getting very much entangled with what is handling in China,
Speaker 1: very much around the colin situation in Shinjang. And I
Speaker 1: wonder from your perspective whether you think that US based
Speaker 1: companies should face a band of using cortinado Shinjang. Well,
Speaker 1: here's what I think, you know, and I don't think
Speaker 1: I think that what we should do. Uh And as
Speaker 1: I believe there's are foreign affairs and work in multidagard ways.
Speaker 1: So I was a strong support, a strong supporter for example,
Speaker 1: And here's what I think that we made a mistake.
Speaker 1: I was a strong supporter and TPP working with other
Speaker 1: countries to make sure that the rules were leveled and
Speaker 1: to instead of isolating ourselves, make sure that we all
Speaker 1: are playing by the China doesn't played by those same rules.
Speaker 1: Then China would be isolated. And so when they are
Speaker 1: playing with certain products, particularly when you talk about the
Speaker 1: type of product that you just mentioned and chips, et cetera,
Speaker 1: that um um it is us who believe in you know,
Speaker 1: I'm a firm believing the w t L and others,
Speaker 1: and we need to enforce those laws and rules, and
Speaker 1: China who's violating though uh and so opposed the just
Speaker 1: just the United States by ourselves, we're not an effective,
Speaker 1: but it was the United States and our friends and
Speaker 1: the EU and our other doing it collectively. Now you're
Speaker 1: having something that is really going to have effect on
Speaker 1: Taylor the congressman right now already And forgive me for
Speaker 1: jumping in if I may u s fake companies are
Speaker 1: already facing potentially a boy card in the mainland right
Speaker 1: now that will hurt their revenues, their profits, and to
Speaker 1: get in line with the policy of the United States,
Speaker 1: you need to get these multinationals on board. And we've
Speaker 1: seen that repeatedly not work out. We saw it with
Speaker 1: the Walt Disney Company last year in the production of Mulan,
Speaker 1: and we're seeing it with Nike right now, who are
Speaker 1: trying to avoid using colin from Shinjiang, along with other
Speaker 1: multinationals too, and they face a boycott on the mainland.
Speaker 1: How do you offer them cover to make the decision
Speaker 1: that would be in line with your administration. Well, the
Speaker 1: way to know you offer them cover is that if
Speaker 1: they work collectively together, we can reverse it. And we
Speaker 1: could reverse I know that they know China is doing
Speaker 1: what it's doing because they think that they would put
Speaker 1: pressure on us in that regards and isolate us. Uh.
Speaker 1: So the way that you change that is working with
Speaker 1: the multi naturals collectively, putting them all together, figuring out
Speaker 1: how we can work together to the their issues in
Speaker 1: their in their concerns or resolved, and then putting that
Speaker 1: proposition versus China. But they want to be there, sir,
Speaker 1: That's ultimately the problem. They want to be there. They
Speaker 1: want to strandle that fine line between pleasing you and
Speaker 1: a progressive consumer base in the United States, and they
Speaker 1: want a presence in China at the same time. So
Speaker 1: I have to come back to the previous question. Is
Speaker 1: it something you would consider banning these companies and making
Speaker 1: the decision for all them fanning them from using Carton
Speaker 1: from that region. See, I don't like to use the
Speaker 1: word banging. I'd like to use the word working collective together.
Speaker 1: And and that means that you can come to a
Speaker 1: resolution collectively, you know, understanding they all have the same
Speaker 1: business interests. I don't want them to to to to
Speaker 1: to damage uh their business interests that they have UH
Speaker 1: in China. I want China to be able to. You know,
Speaker 1: one of the things is to open up their markets
Speaker 1: in regards to our companies so that we can compete globally,
Speaker 1: just as China competes. And we have an open economy
Speaker 1: here in the United States, and that's equitable. And that's
Speaker 1: what training is all about, that's what that's how you
Speaker 1: work both national multinational corporations. So in my estimation, what
Speaker 1: we wanna do is um is uh talk to our
Speaker 1: multinationals and let them know that it is important for
Speaker 1: them to work collected together in the long haul, all
Speaker 1: of us in the long run if we work in
Speaker 1: that and and that's in that cooperation. Congressman, is a
Speaker 1: really dedicate issue right now, and I appreciate your input
Speaker 1: on the subject. I'd love to catch up with you
Speaker 1: against soon on it to Commeressman. Thank you, Congressman Gregory
Speaker 1: makes that a Democrat from New York. It is the
Speaker 1: micro day that leads to the macro call. And Ethan
Speaker 1: Harris joins us right now, expert at the macro call,
Speaker 1: but using the resources of his Bank of America where
Speaker 1: he's head of Global Economics. Ethan, what I do is
Speaker 1: I look at the parlor game of one year guests
Speaker 1: or two year guests, and I take it considered Ethan
Speaker 1: Harris average, that's what Michelle Meyer does, and I come
Speaker 1: out with a Chinese economy. You guys have six and
Speaker 1: a quarter percent economic growth spread out over twenty four months.
Speaker 1: That is a Chinese equivalent economy. How will America and
Speaker 1: adapt and adjust to this? If we have an economy
Speaker 1: that's not structured like China, Well, we can grow at
Speaker 1: that pace indefinitely. I mean, this is just a huge
Speaker 1: fiscally fueled recovery, fastest recovery in history for the US
Speaker 1: ecomy in the next two years. Um. And eventually we
Speaker 1: have to slow down and so uh, you know by
Speaker 1: the time we get to two thousand twenty three, Uh,
Speaker 1: there's gonna have to be some changes here. The FED
Speaker 1: is gonna have to pull back a bit. We can't
Speaker 1: really afford to continue to do trillion dollar fiscal packages
Speaker 1: every year. Um. We can't grow at Chinese rates. We
Speaker 1: don't have the the population, we don't have the catching
Speaker 1: up to do a new technology that China has. But
Speaker 1: we can get to really robust years in a row. Ethan.
Speaker 1: I've been looking at the account spending data that you
Speaker 1: produce in your repulse, And I just wanted for you one,
Speaker 1: what are you seeing right now? And so how useful
Speaker 1: has that been just to have every twist and turn
Speaker 1: spout out for you guys just ahead of time. Yeah,
Speaker 1: I mean, we aggregate the data, so obviously we don't
Speaker 1: know anything about the individuals involved in this data, um,
Speaker 1: and we we gets turned out to correlate quite well
Speaker 1: with turns and spending. And it's particularly interesting to look
Speaker 1: at the spending behavior when you can match it up
Speaker 1: to policy changes like the rollout of stimulus checks and
Speaker 1: how that impacted households who got those checks. Um. And
Speaker 1: what you found was that the stimulus checks really boosted
Speaker 1: spending a lot, and it's one of the factors that
Speaker 1: convinced us to get even higher above consensus on growth
Speaker 1: with consumer spending. We think in the UH the start
Speaker 1: of the year at almost twelve percent annualized rates. So
Speaker 1: the stimulus check really have put a lot of caffeine
Speaker 1: into the economy. Unreal numbers, Ethan, Just forgive me, just
Speaker 1: give me a couple of minutes and I'll go through
Speaker 1: some of your research for our audience. Least look at
Speaker 1: this seven days ending mass. Now you can do the
Speaker 1: year over year and you can look at the base
Speaker 1: effects and we're up forty pc. But just look at
Speaker 1: ten the last two years nineteen or rather into twentys
Speaker 1: is twenty one. Right now we're up on a two
Speaker 1: year basis for retouth souths. Looking at the credit spec
Speaker 1: con spending that we got down to bank for America,
Speaker 1: it's not a huge But when do we move from
Speaker 1: recovery and just making up the lost ground into something
Speaker 1: more sustainable and that something that has perhaps longer legs
Speaker 1: adding to employment, adding to inflation over the longer term
Speaker 1: and ethan, it seems like the consensus is this is
Speaker 1: a momentary blip. Morgan Stanley is saying it will burn
Speaker 1: hot and it'll burn short. Do you agree, or their
Speaker 1: longer lasting legs from all of this spending that could
Speaker 1: bleed into a faster economy for an even longer period
Speaker 1: of time. Well, I mean it is true that that
Speaker 1: that we're not going to grow at twelve percent every
Speaker 1: quarter going forward, but the fade and growth is not
Speaker 1: going to be that dramatic. Were we think by the
Speaker 1: end of next year will be growing four percent instead
Speaker 1: of twelve percent. That's still a great number. By historic
Speaker 1: standards says double the normal growth rate of the US.
Speaker 1: And the reason we think there's legs in this is
Speaker 1: because they're going to continue to roll out fiscal stimulus.
Speaker 1: We're going to get another two or three trillion UH
Speaker 1: spread over the next four or five years UH. And
Speaker 1: the Fed is put got both feet planted on the accelerator.
Speaker 1: Keeping interest rates at zero in the face of a
Speaker 1: strong recovery and rising inflation is very stimulative. It's unprecedented.
Speaker 1: So I don't agree with this idea of a short
Speaker 1: run kind of caffeine high that then goes away. I
Speaker 1: do think we slowed down, but we slow down to
Speaker 1: still strong rates. This is a really important point. And
Speaker 1: you raised an issue of ongoing fiscal stimulus. How much
Speaker 1: are you thinking about these checks, not maybe four hundred,
Speaker 1: but still checks being sent to Americans as being the
Speaker 1: precursor to some sort of universal basic income, some sort
Speaker 1: of ongoing payments, and that the evidence of the spending
Speaker 1: that John was just talking about being used to justify
Speaker 1: that kind of plan. Well, you've got you've got elements
Speaker 1: of this already in the various plans from out of
Speaker 1: the administration. So we've already seen an increase in the
Speaker 1: childcare credit just for the the next year, but it's
Speaker 1: very likely that's going to be extended, So they're gonna
Speaker 1: be elements of trying to support moderate income families that
Speaker 1: are developed on a sustained basis. I don't think we
Speaker 1: go to, you know, some of the more aggressive, broader
Speaker 1: proposals around kind of guaranteeing incomes at certain levels. I
Speaker 1: don't think we get to that. But there's a lot
Speaker 1: of progressive elements to this, the stimulus and tom Here
Speaker 1: is the conundrum, in my opinion, when it comes to inflation,
Speaker 1: which is such a key issue for markets. The idea
Speaker 1: here that if we start getting payments directly into the
Speaker 1: economy and an ongoing basis, could that fuel an inflationary
Speaker 1: push that perhaps people are not factoring in. And how
Speaker 1: much does this finally lead to wage inflation that we
Speaker 1: have not yet seen that the wage inflation questions there,
Speaker 1: and we'll get that evidence on Friday. Dr Harris, I
Speaker 1: want to go back to Columbia universe a city, in
Speaker 1: particularly to the engineering work at Clark University that was
Speaker 1: hit over your head at a young young age, and
Speaker 1: it goes back to systems analysis and the idea of
Speaker 1: many people that there has to be a cost. There
Speaker 1: has to be a price to any zero sum system.
Speaker 1: How do you have a boom with all the benefits
Speaker 1: of a boom that we're all hoping for and have
Speaker 1: that emotion And there's got to be a price to
Speaker 1: this down the road. What's the Ethan Harris price that
Speaker 1: we will pay? Right? It just gave my whole resume
Speaker 1: away there, thank you for that. Um On the so
Speaker 1: in the short run we can afford to have a
Speaker 1: big bunch of deficits. We uh, we need to get
Speaker 1: the economy out of this whole unemployment rate still over
Speaker 1: six percent UM. But the problem is that while you
Speaker 1: can kind of have you know, your cake and eat
Speaker 1: it two during a recession and do this stimulus, once
Speaker 1: you get into a full recovery, now you're competing for
Speaker 1: resources between the private sector and the public sector. And
Speaker 1: if you keep on rolling out big stimulus money and
Speaker 1: financing through the bond market, you're going to starve the
Speaker 1: private sector of capital. And that's where the danger comes.
Speaker 1: It's not right now. My concern is, you know, we
Speaker 1: get into a fully employed economy late next year, and
Speaker 1: the nobody kind of hits the stops, that sees the
Speaker 1: stop sign there, and we don't slow down at all.
Speaker 1: And then we get computing resources, we get some inflation,
Speaker 1: we get some crowding out of private investment. Because you
Speaker 1: know what's fascinating Ethan about this in brilliant analysis, is
Speaker 1: it versus a closed economy versus open economy. If we
Speaker 1: get to a capital allocation moment two thousand twenty three,
Speaker 1: two thousand twenty four, we do that in a global economy,
Speaker 1: does that leak out into the global system. Yeah, I
Speaker 1: mean we're gonna be we are drying going to driving
Speaker 1: the global economy in the next couple of years to
Speaker 1: a lesser degree. China as well. Um, we're gonna be
Speaker 1: buying a tremendous amount of imports, so we're gonna be
Speaker 1: exporting a big chunk of our fiscal stimulus um. And
Speaker 1: we're gonna be relying on foreign capital to help fund
Speaker 1: our economy. And so you know that's not free money,
Speaker 1: that's money that you you know, you owe to the
Speaker 1: rest of the world. Um. And so there's a growing
Speaker 1: indebted as the US to the rest of the world
Speaker 1: continue to borrow like crazy. So we're gonna have bigger
Speaker 1: trade deficits can sustain high budget deficits. This isn't a
Speaker 1: free lunch here, yeah, John, this is so so important.
Speaker 1: Goes back to Bill Gross years ago talking about the
Speaker 1: locomotive of the system, and as Dr Harris says, there's
Speaker 1: no question the US is a locomotive front and center
Speaker 1: very much. You can see that in the data at
Speaker 1: the moment the recovery and China is already mature, you
Speaker 1: see in the credit Impulse data as well. So Ethan,
Speaker 1: we've gotta leave you there. Ethan Harris, Bank for America Securities,
Speaker 1: Head of Global Economics. Thank you. This is the Bloomberg
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